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Ripple CEO Brad Garlinghouse believes bitcoin’s long-standing influence over cryptocurrency prices might be coming to an end. In an interview with CNBC, Garlinghouse contends the price of altcoins correlate with that of bitcoin, making them subject to the volatility of traders and speculators who use the flagship cryptocurrency to make a quick buck.
“There’s a very high correlation between the price of XRP and the price of Bitcoin, but ultimately these are independent, open-sourced technologies,” said Garlinghouse. He added that while it’s still early, “over time you’ll see a more rational market and behaviors that reflect that.”
Bitcoins Reign of Volatility
Ever since bitcoin’s meteoric rise in price and popularity during the second half of 2017, financial markets have regarded it as the gold standard by which to judge all other cryptocurrencies. As such, when bitcoin’s price plunged more than 50% in the first half of 2018, many altcoins suffered a similar drop in market cap.
Despite having secured partnerships with financial institutions such as the Royal Bank of Canada and the Bank of Tokyo-Mitsubishi (MUFG), Ripple’s XRP token was likewise affected, plunging nearly 70% during that same period.
Garlinghouse’s opinion on the effect bitcoin’s price volatility has on altcoins is echoed by Kowala CEO Eiland Glover; “every crypto trader knows that bitcoin is not only extremely volatile but that with nearly 40% of the market, it holds enormous influence over the price of other cryptocurrencies.” However, Glover sees an end in sight, adding that “In the very near future…Bitcoin’s ability to affect general market trends will be significantly lessened. The days when bitcoin could coast off its first mover advantage are quickly coming to an end, and the rise of altcoins and stablecoins are a good part of the reason why.”
Alan Curtis, head of the decentralized peer-to-peer trading platform Radar Relay, expressed similar sentiments. “The markets are in the early stage of independent price discovery. Token price movement decoupling from BTC is not a matter of if; it’s a matter of when. As the token economy matures, new categories of tokens are coming to market with a variety of target users and use cases”.
Additionally, Curtis mentioned that on Radar Relay’s platform, several tokens have already begun to see counter-cyclical price movements. “We see a lot of nascent projects and it’s hard to gauge where all of them are headed, but with such a variety in technology and progress, we fully expect a decoupling of price from bitcoin.”
The Rise Of The Altcoin
A couple of years ago, investors looking to get into cryptocurrencies didn’t have much choice. Today, there have been over 400 separate ICOs, collectively raising nearly $10 billion in funding. Potential investors hoping to stumble upon the next Bitcoin have been leaping at the opportunity to invest in ICO’s. Since one can’t trade fiat currency for most altcoins, investors need to trade mainstream tokens such as BTC to buy these currencies. With altcoin values measured in bitcoin rather than fiat, when BTC drops there’s a big chance its trading pair will do the same.
Some companies are trying to solve this issue. Bittrex announced recently that they would be offering fiat trading options for certain cryptocurrencies. Although their current selection is limited, the company promises to add other altcoins over time.
Traditionally, financial institutions have avoided getting involved with the crypto-industry because many conservative analysts see it as a potential enabler of criminal activity. This trepidation has left virtual marketplaces trading altcoins on a “crypto-to-crypto” basis and only further ensures that price volatility will endure. If fiat-to-crypto becomes a viable alternative for these currencies, it could add a level of stability to otherwise turbulent prices.
As for when Garlinghouse’s prediction will come true, that’s anyone’s guess, but experts concur that the need for a less volatile marketplace is essential.
Jack Choros is a freelance writer for Blockchain Business News Network